Analysis of Politics, Philosophy and Economics from a Marxist Perspective

Wednesday, 28 December 2016

Predictions For 2017

At the end of last year, as I had done the previous year, I made ten predictions for the
year ahead. Again, as I did last year, before setting out ten
predictions for the coming year, its only right to look at how the
predictions for this year worked out.

Whether
Clinton or Trump won in the US, the outcome was going to be that the
need for an expansion of fiscal stimulus would impose itself.
Moreover, Bernie Sanders came much closer to winning the Democratic
nomination than anyone was predicting at the end of last year. He
was able to bring into existence a large social-democratic movement,
similar to that created behind Corbyn. Only the full force of the
Democrats bureaucracy, mobilised behind Clinton prevented Sanders
taking the nomination.

In Britain,
Corbyn easily saw off a challenge from the old
conservative/Blair-right wing of the party, despite their entrenched
position in the PLP and party bureaucracy. The party continued to
grow at the grass roots, strengthening this social-democratic wing
against the conservative wing. The Tories also dropped austerity as
their mantra, and committed themselves to a large-scale
infrastructure programme and fiscal stimulus.

Across the
globe, the centres of decision making, including within the central
banks themselves, have recognised that monetary policy has run its
course, and that fiscal policy must now be used to encourage economic
growth, as a prerequisite for capital accumulation, which itself is
the prerequisite for the payment of interest, so as to justify
financial asset prices. The effect, as predicted, has been to see a
sharp rise in interest rates. Not only has that been seen in the
real market rates of interest, for example in relation to LIBOR, and
other similar overnight lending rates across the globe, but it has
also even been seen in the heavily manipulated sovereign bond yields.
In August, I wrote a blog talking about UK 10 Year Bond Yields,
being at 0.60%, and US 10 Year Treasuries being at 1.60%. Today, the
UK 10 Year Gilt Yield has more than doubled to 1.40%, whilst the US
10 Year has risen by 50% from 1.60% to 2.60%.

A turn to
fiscal expansion will cause bond yields to spike higher still, and
the bond bubble to burst. For now, as is often the case, the decline
in bond prices has seen the money move from bonds to shares, pushing
stock markets higher. The prospect of fiscal expansion, and
lucrative contracts for construction companies, and of rising demand
to provide increased revenues and profits for all companies, has
fuelled stock market rallies across the globe. That will be
short-lived, as the increased revenues will be seen to come at the
cost of even higher input costs, especially of rising wages, and a
lower rate of surplus value, squeezing profits, and as higher
interest rates, bring about lower capitalised prices of all financial
assets and property.

We have not
yet seen a visible growth of social-democratic political forces in
France, Italy and Germany. Indeed, it might be argued that the
potential for Le Pen to win the Presidency in France, like Trump's
win in the US, and the vote for Brexit in the UK, represent the
opposite. But, this only shows that such reflections of the
underlying conditions are complex and contradictory, and not
mechanistic. Trump won by a populist appeal to get the economy going
via Keynesian fiscal stimulus, particularly an appeal to US workers
in the rust belt. The Brexiteers promised to spend £350 million a
week extra on the NHS, Le Pen proposes a large scale fiscal
expansion. But, in fact, it is only social-democrats that could
consistently undertake such a programme.

2. The
second prediction was that global growth would be higher than
predicted. That was the case, and the perennial predictions of some
that the world would fall into another recession, or even a “Long
Depression”, were once again proved to be false, and more down to
wishful thinking than reality.

3. The
prediction was that interest rates would rise faster than expected.
Some were predicting that the rise in official rates undertaken by
the Federal Reserve would have to be reversed. To that end, stock
markets crashed in January, but when that did not result in the
Federal Reserve reversing the increase, they began to climb higher,
on the back of the idea that they had done at least enough to stave
off any further rises in the official rates. But, as the year
progressed, and the need for fiscal stimulus became ever more
obvious, market rates continued to climb. That was especially the
case, as employment levels across the globe continued to rise, and
unemployment fell. That also meant that wages began to move higher.

4. Following
on from what has been said above, the prediction was that the prices
of financial assets and property would fall sharply. In January,
stock markets did fall sharply and then rose during the rest of the
year. Bond prices have begun to fall significantly, as bond yields
and other interest rates rise. Commercial property prices have been
falling, notably by around 40% in London after the Brexit vote. The
prices of very expensive houses in London have also been falling by
similar amounts. The rise in interest rates in the US has also begun
to affect housing demand, and property prices there. But, the main
fall is yet to happen.

5.
Predicted that inflation would be higher than expected. At the time,
the main concern of economists and pundits was the spectre of
deflation in Britain and Europe, and potentially in the US. It was
one of the reasons given for maintaining very loose monetary policy
(wrongly as the money printing was causing an inflation of asset
prices and deflation of commodity prices). As predicted, inflation
has risen more than expected, and continues to gather pace. The
sharp falls in primary product prices caused by overproduction
resulting from the earlier higher prices, came to an end, and prices
of oil, iron ore, copper, foodstuffs etc. began to rise. Rising
global employment and wages meant higher demand for wage goods, and
with lots of liquidity sloshing around, and with productivity growth
stagnant, market prices rose. In Britain that was exacerbated by the
sharp fall in the pound following the Brexit vote. US core inflation
is already at the required 2% level and rising. Inflation is rising
across the EU, and in the UK, its estimated that the average
Christmas dinner this year is about 20% more expensive than it was
last year!

6.
Predicted a continuation of the process of new commodities based
around new technology, including gene and biotechnology etc. That
has again been proved correct, and is reflected in the growing number
of books and articles about the role of this technology.

7. Not only
has this prediction been proved correct, but we have seen a growth in
further alternatives such as Uber, and other sharing systems.

8. Predicted
that Labour would do much better in the local elections than was
predicted. Remember at the time that Corbyn had only just been
elected leader, and the PLP were doing everything they could to
undermine him. As predicted, Labour did at least as well as they had
done in their previous best year, under Miliband, they also won
parliamentary by-elections, extending their majorities, as forecast
in Labour seats, and also won Mayoral elections.

9. Has
proved correct, but its full impact is yet to be seen. As the
Government party in Scotland, the SNP have pushed through Tory
austerity, in their budget, when they had the opportunity to have
used their tax raising powers to oppose it.

10. The
prediction here has been fully born out. ISIS defeated in Syria, but
more entrenched in Libya; the Kurds have asserted their separate
interests; that caused fractures in NATO and the continuation of the
break-up of Iraq; “as
Russia secures the existing Syrian regime in power, and the West has
to accept it”.

Now
on to the predictions for the year ahead.

As
the material conditions continue to impose themselves, the political
meat grinder will rein in Trump, Brexit and right-wing populism
across the EU. Real economic and political power resides in cities,
and the larger urban conurbations.

In the US, the Mayors of
these large cities have already come out to say they will resist any
attempts to implement Trump's policies on immigration etc. In order
to push through his policies for fiscal expansion and infrastructure
spending, Trump will probably have to rely on support from Democrats
against the opposition of Tea Party and fiscally conservative
Republicans.

Brexit is already being put through the
political meat grinder, including through the courts. Tories on the
pro-EU/Social democratic wing of the party are already lining up
with Liberals and Labour to restrict the ability of the Tory right
to impose a damaging hard Brexit. Germany and France will have an
increasing interest in proposing a large fiscal expansion, and
infrastructure programme. Both large economies need to see off the
right-wing populists in their own countries, and the danger of the
EU fragmenting. Both large economies need to prevent a meltdown of
the Italian economy, and Germany in particular, needs the EU economy
to grow faster, so as to provide a growing market for its
manufactured exports.

The
EU fights back. The EU is a political project, driven by economic
realities and necessities. The reality is that global capitalism
long since outgrew the fetters of the nation state. As I wrote more than thirty years ago, if it could, capital would forge a
global state, providing a level playing field for all capital to
operate within, on the basis of a single market, single currency and
common laws and regulations, and a single fiscal and monetary
framework.

It can't, for all the reasons that meant that
forging those things out of the separate states of the US required a
Civil War, and led to repeated European wars between states, and now
has prevented a rational framework being established in the EU.
Global capitalism – imperialism, the most dynamic phase of
capitalism – has progressed from being a system of states,
however, to being a system of regional economic and political blocs,
and a series of para state global bodies, e.g. IMF, World Bank, WTO
etc.

The EU, and these global para-state bodies were
expressions, in the post-war period, of the dominance of big
socialised capital, and of the development of the social-democratic
state as the political expression of its needs and interests. The
rise of conservatism and nationalism, in the last thirty years,
represents a reflection of the temporary, conjunctural weakening of
that socialised capital, as part of the long-wave cycle, and an
assertion of the interests of the owners of fictitious capital –
shares, bonds, property – whose political representatives the
conservatives are and have always been.

An economic reality,
as Marx sets out in Capital, is that ultimately productive-capital
dominates, and merchant capital and money-capital are subordinated
to it, as is landed property, because it is productive-capital which
produces the surplus value, on which these other revenues depend.
As this productive-capital is now dominated by big socialised
capital, its interests, and the need for a large, social-democratic
state, to defend them, forms the base-line, and it is then only a
matter of to what extent, at any moment, within the long wave,
conservative forces can restrict or inhibit the role of the state,
in fulfilling that function, or utilise it to defend their own
specific immediate interests as against those of the socialised
industrial capital.

For example, they have used the state,
via the central banks, to keep the prices of that fictitious capital
astronomically inflated. But, the economic reality ultimately
asserts itself. Even the central bankers and representatives of the
speculators realise that monetary policy has run its course in being
able to keep asset prices inflated. Only an expansion of capital,
and rise in the production of surplus value can provide a basis for
future payments of interest and rent.

The long wave
conjuncture has shifted. The EU will now be forced to press ahead
with the rational development of political structures required to
meet the needs of its economic base. That means consolidating the
Eurozone, and speeding up the integration of other EU currencies
within it; firming up the Banking Union, which will also involve a
rationalisation of European banks into a much smaller number of big
banks, and as the UK pulls away, Frankfurt will become the rational
financial centre of Europe; the development of an EU Debt Management
Office, and move to the issuing of EU Bonds, rather than sovereign
bonds issued by individual states.

With a continuation of the
migrant crisis, the EU will have to set up a unified border force as
the precursor to a European Army. But, it will also be led to use
fiscal policy to stimulate the economies of the Southern periphery,
and to return to the policy of establishing an economic relationship
with the states of the Middle East and North Africa that border the
Southern shores of the Mediterranean. Expect that new arrangements
will be established with newly entrenched Bonapartist regimes in
those states of MENA.

UKIP
disintegrates. The much hyped threat to Labour from UKIP will be
shown to be a pipe-dream. The 30% of the population that hold
bigoted views (which surveys show overlap on a range of issues from
the EU, immigration, feminism, homosexuality and the environment)
are more motivated than the other 70% of the population to vote,
when the issue is restricted to these themes, but less motivated to
vote solely on that basis, in more general elections. So, for
example, Remainers have been more motivated to turn out to vote for
pro-Remain candidates in by-elections than have Leavers to turn out
to vote for pro-Leave candidates. That reflects the fact that these
issues are still lower priorities for voters than issues such as
jobs, wages, public services and so on. It also reflects the fact
that Remainers are more aware of the threat to jobs, etc. from
Brexit than that Brexiteers are confident that Brexit might improve
those conditions.

UKIP, to the extent they are not just
closet racists and fruitcakes, are just right-wing Tories. A look
at the policies of UKIP's new leader, Paul Nuttall, a former
right-wing Tory himself, shows that on these wider issues, they have
no policies attractive to workers. Farage was the glue that held
these mavericks together. Nuttall's nutters are heading for
oblivion.

This
will be a decisive year for Corbyn and his supporters. The specific
conditions of the Copeland By-Election may again mean its not that
instructive. More significant will be how Corbyn and co. respond to
the triggering of Article 50, in March, the rising tide of calls for
tighter immigration controls, and limits on free movement, and how
Labour does in local elections. So far, those around Corbyn, more
than Corbyn himself, have been vacillating, either making outright
retreats or else answering questions with evasive responses that
both appear weak, and confusing, and remind people of the old
politics. Corbyn and his supporters need to provide a strong,
clear, unequivocal message, in the next few weeks and months of
support for workers in defending their pay and conditions, whether
those workers are employed at Sports Direct or at Southern Rail; no
concession on free movement; no support for a Brexit that restricts
free movement, or threatens other workers' rights and benefits
(which effectively means opposition to Brexit itself).

Its
time for Corbyn and his supporters to turn the ideas about building
a social movement into action. We should see regular large rallies
and demonstrations, joining with other European workers and
organisations for the defence and advancement of workers' rights and
interests, across Europe. We should join with these other forces
to demand action by the EU to end austerity and introduce
stimulative investment, particularly in the peripheral economies, to
cut unemployment and spur growth, whilst demanding no more bail-outs
for the banks.

Labour should mobilise its half million
members, and its resources, to physically support every strike,
every community action against austerity etc. If Corbyn and his
supporters do that, Labour's standing in the polls will rise, as
voters see a credible answer being provided. If not, Labour will
become irrelevant; its membership will evaporate, and Tory reaction
will triumph.

As
happened in similar conditions, in the mid 1960's, inflation will
spike sharply higher. As interest rates rise, the price of
financial assets, land and property will fall sharply. Money will
flow out of those things quickly, as no one will want to be left
holding a rapidly depreciating asset, and for those assets that are
illiquid, such as property and junk bonds, this crash will be more
pronounced as everyone rushes for the exit.

Whether the money
flows into the purchase and circulation of commodities for personal
consumption (revenue) or the purchase of commodities for productive
purposes (capital) the result will be that the money demand for
these commodities will rise, causing market prices to rise.

The
sharp rise in demand for commodities, and of commodity prices, will
lead to an increase in investment, initially in circulating capital
(materials and labour-power), as existing fixed capital is used more
intensively, driving up capacity utilisation rates. This causes a
further rise in demand for these commodities, pushing market prices
higher again, which also leads to wages rising, to compensate. The
astronomical amounts of liquidity pumped into the system by central
banks, facilitates the sharp spike in this commodity price
inflation, just as previously it caused asset price
hyper-inflation.

The
three-year cyclical slow-down sets in again, in the fourth quarter of
2017, but, for the reasons set out in 5), it will be manifest in
relative rather than absolute terms, i.e. growth in general will be
strengthening, whilst the period Q4 2017 – Q4 2018 will be just
slower than this quickening trend. Specific economies, such as the
UK, may suffer greater effects, because of particular conditions,
such as Brexit.

Fillon
wins the French Presidency, but the Socialist Party splits, leading
to a realignment. A Corbynite movement develops within it,
attracting sections of the French Left to it.

Merkel
wins again, but the SPD increases its relative position, as the AFL
takes some votes away from other right-wing parties. Germany is
already at full-employment, largely due to the boost to domestic
demand that the influx of migrants has given to the economy. German
wages are rising as a result. There is a strong incentive for
German capital to consolidate its position in the EU, as the UK withdraws,
by investing in productive capacity in lower cost EU countries.
Expect companies like BMW, Siemens etc. to relocate production from
Britain into Ireland, Spain, Portugal, Italy etc.

Within
days of Trump's inauguration, China flexes its muscles by starting
to sell some of its huge holdings of US sovereign and corporate bonds.

Trump's
cosying up to Putin, and coolness to NATO, strengthens the incentive
for the EU to also look to its own greater economic ties to Russia,
and its own defence and strategic interests, particularly as it
tries to create a more stabilised economic buffer zone around its
periphery.

The EU will have greater success in establishing a
modus vivendi with Russia, with which it has far greater economic
ties, than will the US. That leads to a fit of pique on Trump's
part, and a rupture between him and Putin. Putin will lose no sleep
over it, as Russia's economy starts to grow on the back of increased
trade and investment from the EU and China.

About Me

Left school at 16. Became an ASTMS shop steward at 19, and a lifelong trade union activist. Delegate to North Staffs Trades Council 1974-87. Secretary North Staffs Miners Support Committee 1984-5. President North Staffs Trades Council 1985-6 and 1986-7. Delegate to Staffordshire Association of Trades Councils 1985-7. Delegate West Midlands Regional Council of the TUC 1985-7. Secretary Newcastle UNISON 2000-2.
Member of the International Communist League/Workers Socialist League 1974-87.
Went to University as mature student at age of 24. Obtained Joint Honours Degree in Economics and Politics with Philosophy and Statistics, followed by a Post Graduate Certificate in Education.
Labour Party member since 1974. Stoke City Councillor 1983-4, expelled from Labour group 1983, and resigned from Council in 1984 because of refusing to vote for rent and rate rises, and budget cuts. Staffordshire County Councillor 1997-2005.
Assistant Secretary Stoke District Labour Party 1981, and held pretty much every position from Executive member, to Branch Secretary, and Branch Chair.